GUIDE TO BRIDGING FINANCE
Intermediaries have been providing us with differing scenarios in the last year that have tested our knowledge of the market and FSA requirements. The case studies highlight just two
ways that bridging finance has been used to help clients out of potentially sticky situations, and what worked well on both was the fact that there was a real need for bridging finance and a clear exit route. In December 2011 the FSA published
the latest instalment of its Mortgage Market Review, covering all aspects of the market and its regulation. Through
it the FSA is aiming to deliver a market that works better for consumers and is sustainable for all participants. The paper had a reasonable focus on bridging finance and went into some depth on various aspects of the industry. It stated that bridging lenders will be required to have an interest-only policy in place clearly stating what exit routes they consider viable. It defines a bridg- ing loan as a regulated mortgage con- tract with a term of 12 months or less. It’s nothing we didn’t know before, but it is good the industry is being looked at
Case Study: The race to completion
The clients in question were a couple who had already exchanged on a property they intended to live in, having recently sold their previous residence. The completion date had also been set – five days after we received the application. The clients had intended to borrow the funds from a high street lender but unfortunately were not able to release the monies in time for completion. Our standard timeframe for completion is seven to 10 working days from the receipt
of valuation and legal fees being paid, however due to the tight time constraints we started working on the loan immediately and ensured all parties were made aware of the urgency. The loan requested was a substantial amount and to proceed we required the support of additional security, which the clients offered in the form of an unencumbered buy-to-let property. A lifelong friend of the couple who they had helped in the past owned the buy-to-let
property and was now repaying the favour. As a result of this arrangement, the friend obviously became party to the loan. Both valuations were instructed immediately and the properties were inspected two
days later, with the report signed off within 24 hours. Solicitors were also instructed the day the application was received. Luckily the client’s solicitor understood the urgency and provided the information
requested quickly and efficiently. The introducing broker was also proactive and helped ensure that any information requested was dealt with immediately. As in most deals, there were a few hurdles we had to overcome prior to us being
comfortable and in a position to complete on the scheduled date. A major concern occurred when we received the valuation report and it became
apparent that the property being purchased was in need of considerable renovation. We were not informed of this when agreeing to the loan in principle, which obviously had an effect on the amount we could lend. But when the client provided us with the necessary damp and structural reports, and
confirmed that they intended to finish these on completion of our loan, we agreed to lend them 65% LTV – a slight reduction on the initial loan amount offered. It also helped that the additional security was in excellent condition. The clients
accepted the reduced LTV and we were able to issue a revised offer the day before completion, which was signed and returned in time for the deadline.
26 The guide to Bridging Finance 2012
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40